BY PAM SAUL
It’s that time of year again, when thoughts turn to fulfilling our
New Year’s resolutions. Nah, I’m kidding. This is when everyone tries to figure out how much they have to pay in taxes!
There have been some major revisions to the Tax Code for the U.S. for 2018. Some of the basic methods we’re all used to have been changed and some removed. Here are some of those changes that may affect many of us:
The Standard Deduction changed for 2018. Previously, a taxpayer had the option of the federal standard deductions or itemizing their deductions. It was a hassle to identify expenses and calculating deductions one by one. The hassle was also that you had to do it both ways to see which one made sense for that year. For 2018, here are no personal or dependent exemptions as they have been completely removed.
For a majority of the population, the increase in the amount of the standard deduction will lower the
- Married – filing jointly $24,000
- Heads of Households $18,000
- All other taxpayers $12,000
There are also new tax brackets that spell out the rate for the income tax for individuals. Currently, this rate is effective through 2025 and may revert back, it depends on what Congress decides.
As a business owner, there are also some changes to consider:
• We used to have “Meals & Entertainment” as a way to write off expenses associated with our clients. For 2018 – entertainment deductions disappeared completely. No more writing off sports tickets or other items that can be considered leisure. Meals still can be used as a deduction but has new requirement for 2018.
• Bonus depreciation for qualified property for the first year can be 100% and used property is now considered qualified property. It might be to your benefit to purchase that farm between now and 2023, when the bonus will start to phase out.
• The Auto depreciation limit changed for 2018. The new schedule is $10,000 for the first year, $16,000 for the second year, $9,600 third year, and $5,760 for subsequent years. You might consider that new vehicle to take advantage of these new limits.
Another area that should be noted is a home business office.
The IRS has strict requirements for what can be designated as a true business expense for space in your home as a business write off. For example, if you use your kitchen table to record your business expenses in your register or to mail out invoices, that does not mean you can write off the kitchen as a business location… not even close. If you use your family room to have your desk set up, and the kids use the same space to watch your large screen TV, that’s not a business space either.
In order to truly meet the requirements, you must have a portion of your home set up solely to be used for business purposes. So – a room set up with your business computer, all your business files, your business fax machine, and other business-stored items only, would qualify as a home office.
All these items should be discussed with your CPA to make sure you meet the requirements and are correctly recording your income and expenses, as well as your assets and liabilities.
And finally, for the question that I get all the time…How Long Do I Need to Keep Records? Here is a list for you regarding business files. There are differences between personal and business records so use this as a guide, but verify for your particular needs:
- Employee records—keep for 3 years from termination.
- Employee earnings records—keep for at least 4 years after termination. For records involving unclaimed property, such as an unclaimed paycheck, check state laws.
- Timecards—keep for at least 3 years if your firm engages in interstate commerce (i.e., is subject to the FLSA); at least several years, regardless.
- Employment tax records—keep for 4 years from the date the tax was due or the date the tax was paid, whichever is the later date.
- Travel records—keep mileage logs, receipts and other supporting documents for 4 years (IRS rules).
- Sales tax returns—keep as long as state law requires.
- Business property—keep records that substantiate costs and deductions (purchase, depreciation, amortization and depletion documents) until the asset is sold, traded in or disposed of plus 7 years, according to IRS guidelines
And for a very broad, very general list, keep all records for 7 years and then pitch all except those that need to be kept long term (think deeds, contracts, land dealings.)
Make sure you have someone in your corner that will help you navigate these new rules. Your CPA or Certified Bookkeeper can help you in this area. And if I can answer any questions, please feel free to contact me.
Pam Saul is a Certified Bookkeeper (CB) and the founder of Farm & Equine Business Services (F&EBS) residing on her family’s 200-acre Rolling Acres Farm. Hailing from a longtime ‘horse family’, Pam is part of the family-run team behind Rolling Acres Show Stables; her sisters, Patty Foster and Mary Lisa Leffler are two of the top Trainer/Rider combinations and her parents, Samuel & Janice Nicholson have run Rolling Acres Farm for over 46 years.